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Earthquakes can’t shake capital city’s insurance cover

Jul 6th, 2011 | By | Category: Featured Article, Front Page Layout, News

NEW Zealand may now be considered a bad earthquake risk – but that hasn’t stopped Wellington City Council upping its insurance cover.

It took a special trip to London by chief financial officer Peter Garty (above) to plead the city’s case and he was more successful than he hoped.

The council has succeeded in increasing the city’s cover by $17 million, from $295 million last year to $312 million from June 1 this year, despite recent natural disasters in Australasia having a chill effect on the insurance market.

However, the renewed cover comes at a price.

Annual premiums will climb 50% from $3 million to $4.5 million a year, but more of the increase comes from the 30% of cover offered by New Zealand companies than those in London.

Mr Garty says the council’s goal of $400 million in cover in a couple of years now looks achievable, after international companies based in London and Europe agreed to an increase.

The Japan and Christchurch earthquakes and flooding in Australia have dramatically increased local insurance costs, and some companies are refusing to invest in Australasia.

“The New Zealand markets have been hit hard,” he says.

“Some [NZ insurance companies] have run out of cover and can’t get re-insurance, whereas the London markets can.”

Some 70% of the council’s infrastructure and building insurance is now from London-based insurance and re-insurance companies, with the rest coming from New Zealand.

Mr Garty says making the trip to London himself and being open to questions helped secure a relationship with the overseas insurance companies.

“It’s about consistency – and they like to talk rugby, as well. It’s about making long-term relationships.

“Obviously, the Christchurch earthquake has heightened the awareness of what’s happening in New Zealand, and therefore we wanted to tell the Wellington story.”

Wellington’s quake preparedness, as well as research showing the risk to the city is less than previously expected, helped get a better price.

Recent work done by the Institute of Geological and Nuclear Sciences pushed out the estimated interval between major earthquakes from 250 years to 750 years.

Of the council’s $4 billion worth of assets, $3.2 billion is in infrastructure like roads, water and sewerage pipes, while $800 million is in buildings.

To work out how much insurance it needs, the council is advised on risk by GNS and insurance consultants on the level of cover that is realistic and affordable.

It is estimated it would cost hundreds of millions in annual premiums to fully cover all $4 billion-worth of assets, a sum that is not sustainable.

Mr Garty said in March it might be arguable how high the coverage should be, but he considered the council’s level to be in line with other corporations of the council’s size and type.

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